What is Coke? A bit of sugar, a pinch of flavouring, a splash of water, a fizz of carbon dioxide and a heap of marketing. That formula has produced one of the biggest companies in the world with a breathtaking 35-to-one price/earnings ratio.
That enviable p/e ratio reflects Coke’s screeching 52 per cent return on equity – but only in part. It also reflects the priority that Coke puts on investor relations.
Coke’s commitment to IR is widely recognised, a fact that has been confirmed by America’s leading equity analysts and institutional investors. Their respect for Coke won it the first annual NIRI Grand Prix Award for Best Overall Investor Relations by a US company, at the Awards Ceremony held in the New York Marriott Hotel at the end of March.
The Atlanta-based Coca-Cola Company won the prize based on the results of a survey commissioned by Investor Relations magazine and undertaken by Rivel Research Group, who interviewed nearly 1300 stock analysts and portfolio managers in all.
The respondents, who were interviewed by phone, were not given a list of corporations to choose from, but were asked to name the companies they thought were the top three in each of a number of different categories of IR activity. Seven of these categories counted towards the Grand Prix, ranging from the company with the best overall IR operation to the one that produces the best IR literature.
Thus, with no prompting, the investment community rallied behind the IR efforts of a handful of companies, General Electric, Intel, Philip Morris and McDonald’s – all of which won honourable mentions and ran away with most of the prizes. Intel also won joint top place in the category for the best IR officers, jointly with PepsiCo.
The top scorers in the Grand Prix were those companies that view their investor relations activities as an integral part of their overall operations. Their senior executives take IR seriously, keeping their IR directors in the decision-making loop.
According to comments from the respondents, the most successful IR players are those companies whose IR people combine a strong sense of marketing with a highly disciplined and firm grasp of their company’s financial data and market position.
Above all, these officers project an image of integrity. And they conduct meetings whenever necessary – meetings that are crammed with succinct and pertinent information. The top IR people are readily available and respond speedily to questions and requests. Their literature is packed with information. The very best tend to mix fact with a touch of flair.
Sell-side analysts also set great store by those IROs who are superior at managing expectations. That’s hardly surprising considering that analysts’ reputations – and ultimately their jobs – depend on the accuracy of their earnings projections.
The NIRI Grand Prix for Best Overall Investor Relations
1. Coca-Cola 1712 points
2. General Electric 1373
3. Intel 1149
4. Philip Morris 1030
5. McDonald’s 969
The best scorers in the Grand Prix are highly marketing-oriented companies whose IR activities are natural extensions of their marketing cultures. Of the five top-ranked companies, only Intel had not been known primarily as a marketing genius. But it, too, has become extremely marketing-oriented (and savvy) in recent years, with its now ubiquitous Intel Inside pasted on the outside of every Intel-based computer.
Superb handling of difficult situations also wins kudos (and, perhaps, sympathy) for a company’s IR officers. Fourth-ranked Philip Morris has been under attack in extremis for some time by the multitudinous enemies of the tobacco industry. And last year, third-ranked Intel was plagued by publicity surrounding a problem with its Pentium chip. (The survey was conducted between mid-November 1995 and early January 1996.)
‘They’ve (Intel) had some problems in the past but I think they’ve dealt with them in a very forthright way,’ said one respondent. Said another of Philip Morris: ‘They’re sensitive to some of the political issues over tobacco and do a good job of communicating it with people.’
Best Investor Relations Officer
1. = Intel and PepsiCo 33points
3. Schering-Plough 31
The race for top IR officer was extremely close. Both Intel and PepsiCo scored 33 points, Schering-Plough was close behind the leaders with 31.
Jim Jarrett heads Intel’s investor relations activities; Peggy Moore runs PepsiCo’s; and Gerry Foster is the chief IR honcho at Schering-Plough.
The results of the best IR officer category suggest that the competition between Coke and Pepsi is as close as ever. Taking the Grand Prix and the best IRO award, the two companies’ results are flipped. Coke won the Grand Prix award, while Pepsi came in eighth. But Pepsi tied for first place within the critical best IRO category – in terms of points – while Coke came in ninth.
Respondent comments indicated the ways in which these top-scoring investor relations people cater to the fundamental demands of their market. Said one of Jarrett: ‘When I first started to become interested in Intel, I called and requested every single annual report since 1970 and they Fedexed them all to me the next day. I was very impressed.’
As for Moore: ‘She’s very reliable and a little less close-vested than a lot of the others…she’s very cooperative and quick to return calls.’
And Foster: ‘A lot of investor relations people give the impression they’re outsiders, that they’re not in the loop in management decisions. Gerry gives me the impression that she is in the loop and knows what’s going on in the company at all times.’
Best Senior Management Communications
1. General Electric 130points
2. Coca-Cola 86
3. Microsoft 78
4. Philip Morris 66
General Electric won the senior management communications category by a wide margin, scoring 130 points against Coke’s 86. Much of the credit goes to chairman Jack Welch, described by one respondent as ‘willing to give his own views and not just rely on the IR person to convey them.’
‘I particularly like Jack Welch’s letter to the shareholder in their annual report,’ said another. ‘It’s reflective of what it takes to manage a very large company.’
Is this just an illusion created by a great public relations department? Not according to a former GE PR officer, who asked not to be identified. ‘Welch writes it himself, it’s just polished by the PR people,’ he said. ‘The cadences are Welch’s.’
Bruce Bunch, a GE spokesman, says Welch spends a lot of time writing the letter, writing one draft after another. ‘It’s not something that’s done in a week or two.’
The letter is surprisingly long, more than 2,500 words (about the same length as this article). It gives a fairly thorough summary of what the company has been doing, and up-front admits to mistakes – such as its costly acquisition of Kidder Peabody. Overall, the letter is a bit inspirational, despite Welch’s punchiness.
Welch’s natural candor also serves him well – and General Electric – at public meetings. His style is very informal and interactive, and he often asks the audience as many questions as they ask him.
Of course Welch has an advantage. He’s a celebrity in the business world and, like a movie star, strikes a degree of awe in many people. They recognise his time as being very valuable and respond more positively to his appearance than they would to a CEO of lesser light.
Bill Gates of Microsoft – which ranked third for its senior management communications – is even more of a celebrity. ‘In their analyst meetings, they make senior management very accessible, from Bill Gates himself to all the division heads,’ said one respondent. ‘Bill Gates is in the headlines so much that he just can’t help but transmit information to the public,’ said another.
CEO candor, or at least the appearance of it, works well for many companies. ‘Coca Cola’s top management are candid and say what they have to say without sugar-coating it,’ says a respondent. ‘They just come out and give us the information and don’t beat around the bush.’
Best Investment Community Meetings
1. Philip Morris 60points
2. Intel 59
3. General Electric 58
4. Coca-Cola 57
Philip Morris, with 60 points, took first place in a very tight race. Intel followed with 59, GE with 58 and Coke with 57.
Here, again, Philip Morris gained points for having to deal with tough public relations issues. Respondents spoke of the company’s willingness to ‘address a lot of concerns that people have.’
Despite its size and great profitability, Philip Morris is viewed as an underdog. ‘Philip Morris has a lot of prickly issues … to deal with. They don’t beat around the bush,’ said one respondent. ‘They go right to the heart of the issue and they bring a lot of back-up research with them.’
Said another: ‘They are prepared to give us the answers. We usually come away…with our questions answered, which a lot of companies don’t do.’
Intel won praise for clearly explaining its strategies. ‘The CFO recently came through our area and did a very good job although there was no news to speak of,’ said one respondent. ‘This is appreciated.’
Another respondent praised Coke’s meetings, saying they ‘are just beautifully organised and beautifully presented and they’re efficient and well thought-out.’
Best Use of Teleconferencing
1. Intel 64points
2. Microsoft 49
3. PepsiCo 42
4. AT&T 40
As might be expected, the big winners in the ‘best use of teleconferencing’ category were technology companies. Intel and Microsoft took the two top spots. But Santa Clara, California-based Intel was well ahead of its Redmond, Washington rival, scoring 64 points to Microsoft’s 49. The only non-tech company that scored among the top four was PepsiCo. Fourth, fittingly enough, was communications giant AT&T.
One respondent praised PepsiCo for being ‘to the point.’ Coke’s biggest rival gets ‘the job done shortly and effectively, especially the question-and-answer segment.’ And a major plus noted by one respondent was that they ‘don’t let any one person dominate.’
Pepsi was also praised for dealing effectively with different time zones, perhaps reflecting its need to communicate with its own people who are spread across the world. ‘I like the fact that the teleconferences are in mid-morning or mid-day,’ said one respondent. That ‘gives everyone around the country access to management.’ This respondent apparently works in the Midwest (the survey was done on an anonymous basis so names of respondents and their companies are not known); and he or she complained that meetings held late in the day ‘accommodate the West Coast,’ whereas those held early in the morning accommodate the East Coast.
This respondent also praised PepsiCo for assuming that everyone read the news before the conference, saving time. The meeting ‘provides colour beyond the release’ and the ‘vast majority of the conference call is dedicated to Q&A,’ the respondent said.
Intel was cited for its timely conferences, being forthcoming, thorough, giving direct and complete answers and being concise.
Some respondents also noted negative aspects of certain teleconference meetings. They don’t like meetings that don’t take questions; that try to dodge questions; or that go on too long. At some companies’ conference calls, ‘I don’t learn as much as I’d like to, or get the points that I want fleshed out,’ said one respondent.
That’s not true of Microsoft, according to another. ‘I usually come away from one of their conference calls feeling as if I got some substantive information, that I’ve learned something and been brought up to speed.’
Best Corporate Literature
1. Coca-Cola 158points
2. General Electric 77
3. Philip Morris 67
4. McDonald’s 66
The quality of a company’s IR literature is a good indicator of the quality of its overall investor relations program. The companies that took the first five slots in the Grand Prix also headed the roster of those with the best corporate literature, which includes annual and quarterly reports, fact sheets, press releases and faxes.
As in the Grand Prix, Coke came out well ahead with 158 points, more than twice runner-up GE’s 77. Philip Morris and McDonald’s had 67 and 66, respectively.
Speaking of Coke, its ‘photography is beautiful,’ commented one respondent. ‘I’m impressed with how attractive and thorough it is,’ said another. McDonald’s also received plaudits for the looks of its literature. Maybe ‘beautiful’ is not the word, but one respondent said it was ‘glitzy.’ There’s certainly no question it stood apart – which takes a bit of courage. ‘I found it a lot more interesting than a lot of other companies’ annual reports,’ said a second respondent.
‘It’s very easy to read,’ said a third, referring to McDonald’s. ‘People don’t need a lot of financial knowledge to understand what they’re saying.’
Best Corporate Governance
1. General Electric 87points
2. Coca-Cola 79
3. Merck 52
GE and Coca-Cola took first and second place, but Merck squeezed into the honourable mention group. Respondents showed great respect for Merck as a good and fair employer. ‘I always thought that Merck was fair to its employees at the lower level as well as not overcompensating those at the top,’ said one respondent.
‘I like its overall board structure and use of outside directors,’ said another. ‘They just seem to have a good group of outside directors that help direct the company well.’
Top-ranked General Electric earned plaudits primarily for being shareholder-oriented. ‘The way they want to be number one or number two in every business they’re in reflects their very pro-shareholder stance,’ said a typical respondent.
Coke, in addition to receiving praise for its shareholder orientation, was lauded by at least one respondent for the ‘very nice mix on the board, from academia as well as business.’ This respondent noted that the company draws ‘from all cultural aspects of society both here and globally. They just have a great representation.’
The investor relations community, which also reflects a pretty wide cultural mix, had great representation at the Awards Ceremony and Dinner where these companies and the other winners (see box, above, for the complete list) collected their trophies.
In all, nearly 500 people attended the black-tie ceremony to see their fellows collect Awards or receive honourable mentions for being among the select group whose investor relations efforts earn the special respect of those people whom they most need to impress: the security analysts who cover their stock and the portfolio managers who buy – or sell – it.
Choosing the Winners 2389
With thousands of companies listed on US exchanges, ferreting out the ones with the best IR programs is not easy. Investor Relations magazine decided that the best way would be to let the people who count make the decision: institutional investors and stock analysts.
So we commissioned Rivel Research Group in Westport, CT, to survey nearly 1,300 analysts and investors by phone. Of these interviews, 800 were to determine who would win the NIRI Grand Prix Award for Best Overall Investor Relations and the other mainstream prizes. The other interviews were to rank IR performance among foreign companies and smaller ones.
Of the main block of 800 interviews, 399 were sell-side analysts, 201 were buy-side analysts and 200 were portfolio managers. All were asked to name and rank three companies in each of the relevant categories of IR activity. A company scored three points for a first-place, two for a second and one point for a third.
The seven categories which counted towards the Grand Prix were best overall IR program; best IRO; best investment community meetings; best teleconferencing; best corporate literature; best senior management communications; and best corporate governance. But respondents were also asked to name the company with the best overall IR programme and, to determine the winner of the top prize, each company’s points were added up, with the best overall IR program category weighted to account for two-thirds of the score.
Similarly, winners were identified for each category by the number of points received. Usually three companies were given honourable mentions, but the precise number depended on the closeness of the scores.
In addition to the seven categories that counted toward the Grand Prix, the respondents were asked to choose and rank three companies in five other categories: best crisis management, best IR in a contested takeover, best use of multimedia, best environmental reporting and most improved investor relations.
Apart from the main study, other groups of respondents were questioned about special areas: best communications with the retail market (110 interviews with retail brokers); best IR for an IPO and best small-cap IR (228 interviews with portfolio managers and buy-side analysts); best Asian Pacific company IR (54 interviews); best European company IR (51); and best Latin American company IR (50).
The average interview length was 19 minutes.
